BREAK EVEN

ANALYSIS
BY-
PRABHAV
MUSSADI[49]
PARTHAM K.[50]
ROMIL RATHI [52]
SABRISH P.R [53]
 Break-even point (BEP) is the point at
which cost or expenses and revenue are
equal.
 It helps to provide a dynamic view of the
relationships between sales, costs and
profits.
 A profit or a loss has not been made,
although opportunity costs have been
paid, and capital has received the risk-
adjusted, expected return.
  The break-even point is one of the simplest
yet least used analytical tools in
management.
 A better understanding of break-even, for
example, is expressing break-even sales as
a percentage of actual sales—can give
managers a chance to understand when to
expect to break even (by linking the
percent to when in the week/month this
percent of sales might occur).



 Remember:


 A higher price or lower price does not mean

that break even will never be reached!


 The BE point depends on the number of

sales needed to generate revenue to cover
costs – the BE chart is NOT time related!

ADVANTAGES – sabrish
 The main advantage of break-even analysis
is that it points out the relationship
between cost, production volume and
returns
 It is cheap to carry out and it can show the
profits/losses at varying levels of output.
 It provides a simple picture of a business - a
new business will often have to present a
break-even analysis to its bank in order to
get a loan.

DISADVANTAGES- sabrish
 It assumes that everything produced is sold
whereas it is often the case that not all
output will be sold.
 It assumes that all of the output is sold at
the same price - often a business will have
to lower its price in order to increase its
sales.
 It is best suited to the analysis of one
product at a time.
 It may be difficult to classify a cost as all
variable or all fixed.



 FIXED COST
 Fixed costs are those which are assumed to be
constant during the specified payback period
and which do not depend on the number of units
produced.
 Examples - Advertising, insurance, real estate
taxes, rent, accounting fees, and supplies.
 Fixed costs also include salaries and payroll taxes
for non-direct labour such as administrative
assistants and managers, or in other words, the
payroll not included as variable costs.

 VARIABLE COST
 Variable costs include the production, direct
labour, materials, and other expenses
which depend on the number of units
produced and sold.
 On financial statements, like an income
statement, Cost of Goods Sold (COGS) is a
variable cost.
 Some variable costs may be percentage-
based (like commissions) while others may
be money-based (like material costs).

HOW TO CALCULATE BEP

 FORMULA

 B-E = F / (S - V)



where:
B-E = break-even point (units of production),
F = total fixed costs,
V = variable costs per unit of production,
S = savings or additional returns per unit of
production,
BEP CHART